Spectrum Auction Teeters on the Brink of Success

Bids in the F.C.C.’s auction for wireless spectrum reached the government’s $10 billion goal. One problem: bidding for the biggest block of frequencies stalled at $4.3 billion, below the $4.6 billion reserve price.

Kevin Martin, the chairman of the Federal Communications Commission, has promised a $10 billion contribution to the federal budget from the auction of the 700-megahertz spectrum to be abandoned next year by UHF television stations. After four more rounds of bidding today, the total bids reached $11.6 billion. That's good news but for one little detail. Included in that total is $4.3 billion for a block of frequencies called the C block. This represents the single most attractive license in the auction because it would allow for nationwide service. The government has set a reserve price of $4.6 billion for those frequencies. If the bidding doesn't hit that level, they won't be sold and the auction will likely be seen as a failure. (The auction for the D block, which is meant to be operated in conjunction with public safety agencies, appears doomed to fail in any case.) Since the auction began last week, the price of the C block has been increasing steadily. But after it hit $4.3 billion this morning, there were no more bids in the other three auctions of the day. That raises the possibility that no one really wants to pay the $4.6 billion price tag. Google has said that it would bid $4.6 billion for the spectrum, so if it decided to stop at $4.3 billion, it would have a fair bit of political heat to take. The government is not disclosing who is bidding, so it's a bit hard to know exactly what is going on. But the information it does disclose leads to a few conclusions. In general, the rules force everyone interested in the frequencies to keep bidding in each round. There are two exceptions. If you are the high bidder in any given round, you don't need to raise your bid. And you get three waivers — rounds in which you can skip bidding. In the bidding for the C block, there has been no more than one bid in any given round. That could mean that there has only been a single bidder slowly raising its own bid. Or it could mean that two companies, perhaps Google and Verizon, have been leapfrogging each other. If there have been two interested bidders, then the company that didn't make the high bid this morning would have used up all three of its waivers today. If it doesn't bid Thursday morning, it is out of the auction. If it does bid Thursday, then the other company will have to raise its bid some time that day, or it will be out. One scenario being discussed is that Google has been trying to maneuver the auction so it bids $4.6 billion but still loses. It's possible Verizon has been playing this to force Google to put its money where its mouth has been. (Google got the F.C.C. to agree, over Verizon's strong objections, to rules that would force whoever operated the C block to open its network to rival companies and their devices.) If the bid for the C block doesn't rise Thursday morning, that will mean that there is only one company left in that part of the auction. Under the rules, then, that company could wait until just before the auction ends — which well could be weeks from now —before bidding the $4.6 billion to win. There is a modest incentive to do this. The increment of the next bid declines as the auction progresses. Now, the next bid in the C block must be at least $4.7 billion, so a frugal company might save $100 million by waiting to cross the finish line. If the $4.6 billion level isn't reached, the F.C.C. will likely remove the open-access rules Google requested and hold a second auction for the C-block frequencies. Bottom line: On Thursday morning, Kevin Martin will either get the good news that the auction will achieve his goals, or he will likely have to prepare to spend several weeks not knowing whether it will succeed or fail.